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Ex-Deutsche Bank, Nomura Bankers Get Jail for Paschi Roles

Sonia Sirletti and Sergio Di Pasquale

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Italy took a hard line against bankers involved in helping Banca Monte dei Paschi di Siena SpA falsify its accounts, sentencing 13 executives and managers to jail terms and fining the banks that worked with the Italian lender.

Monte Paschi ex-Chairman Giuseppe Mussari was sentenced to 7.6 years in prison. Deutsche Bank officials Michele Faissola and Michele Foresti and Nomura’s Sadeq Sayeed, Raffaele Ricci also received jail terms. Deutsche Bank and Nomura face fines and seizures totaling about 160 million euros ($176 million) for their roles.

Monte Paschi’s managers were accused of colluding with Deutsche Bank and Nomura bankers to hide losses at the Italian lender by using complex derivatives trades, dubbed Santorini and Alexandria, that led to a misrepresentation of its finances between 2008 and 2012. Paschi reached a plea-bargain deal in 2016 in one of the highest profile European banking cases in the last decade, first revealed by Bloomberg News.

A spokesman for Monte Paschi declined to comment.

All of the 13 suspects from the three banks received prison terms, including Antonio Vigni, Monte Paschi’s former general manager and ex-CFO Daniele Pirondini. The court convicted two of the group of managers despite the prosecution calling for their acquittal.

Prosecutors argued that the complex transaction Deutsche Bank helped put in place in 2008 hid about 430 million euros of losses that Paschi was facing on a previous deal, while Nomura’s derivative hid more than 300 million euros of losses not reported in the bank’s 2009 income statement.

Both transactions were carried out to cancel previous losses by building up two-leg deals, with one leg granting Monte Paschi an immediate gain and the other loss-making one designed to last for several years in order to pay back the investment banks for the gains realized by Paschi on the first one, according to prosecutors.

The judge also requested the prosecutor to look into some of the witnesses who testified during the trial, including former Deutsche Bank official Stefano Dova.

Shocked, Disappointed

Giuseppe Iannaccone, the lawyer defending former Deutsche Bank executives in Monte Paschi case, said in statement he’s “shocked” by the ruling and fully convinced of his clients’ innocence.

“We are disappointed with the verdict,” Frankfurt-based Deutsche Bank said in a statement. “We will review the rationale for it once it is published.”

Deutsche Bank defendants in previous hearings had rejected the allegations of a deliberate effort to hide losses, saying that Santorini was a legitimate deal and carried risk, and was not designed as a sure-fire bet.

Nomura “is disappointed with the verdict,” it said in a e-mailed statement. “After thoroughly examining the content of the judgment, the company will consider all options, including an appeal.”

Nomura’s lawyers during the trial also argued that the Alexandria deal was legitimate and an attempt to mask losses. Monte Paschi’s lawyers also rejected the allegations against their defendants, arguing that the deals were conceived to boost Monte Paschi’s interest margin and reduce previous risks.

Undermined by souring loans and derivatives deals that backfired, Monte Paschi requested state aid in 2017. The Italian government stepped in to take a stake of about 68 percent, injecting 5.4 billion euros in aid as part of an 8.3 billion-euro recapitalization.

(Updates with Deutsche Bank, Nomura comments two paragraphs after ‘Shocked, Disappointed’ subheadline. An earlier version of this story was corrected to remove an erroneous jail sentence.)

To contact the reporters on this story: Sonia Sirletti in Milan at ssirletti@bloomberg.net;Sergio Di Pasquale in Milan at sdipasquale1@bloomberg.net

To contact the editors responsible for this story: Dale Crofts at dcrofts@bloomberg.net, Ross Larsen

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